COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no: 48/LM/May05
In the Large Merger Between:
A P MollerMaersk Acquiring
Firm
And
Royal P & O Nedlloyd N.V. Target Firm
Reasons for Decision
Approval
1. On 1 November 2005, the Competition Tribunal approved the proposed merger
between AP MollerMaersk (“Maersk”) and Royal P&O Nedlloyd N.V. (“PONL”) in
terms of section 16(2)(b) of the Competition Act.
Background
2. This is a proposed merger in respect of which the Commission submitted its
recommended conditions on 5 September 2005. A prehearing was held in order to address
certain preliminary issues, amongst others, the differences between the merging parties and
the Commission relating to the Commission’s recommended conditions of the merger.
Subsequent to the prehearing, we held the hearing on 26 October 2005 which resulted in
the Tribunal requesting the merging parties and the Commission to furnish the Tribunal with
additional information regarding other aspects relevant to the Tribunal’s adjudicative
purposes. As explained above, we subsequently made an order on 1 November 2005.
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3. The proposed transaction is basically a global merger transaction (in the liner shipping
industry) whereby Maersk acquired the entire business of PONL. The transaction was also
notified to various competition authorities in a number of other jurisdictions, viz.: the EU, the
US, Australia, Brazil, Bulgaria, Israel, New Zealand, Romania, South Korea, and Turkey.
The EU conditionally cleared the proposed merger. However, the US approved the
proposed merger unconditionally.
4. The Commission told us that it has had constant contact with the European
Commission during its investigation and there was information exchange between
the two authorities. Subsequently, the Commission adopted the European
Commission conditions as the Commission felt that those European Commission
conditions addressed the competition concerns the Commission had relating to the
South Africa / Europe and South Africa / North America trade routes. After intensive
correspondence and negotiations with the merging parties, the Commission
subsequently withdrew some of its recommended conditions. 1 At some stage the
South African Association of Freight Forwarders (“SAAFF”) which represents just
under 200 freight forwarders in South Africa (and whose members are major
customers of the merging parties) wrote to the Commission indicating their intention
to object to the proposed merger. 2 Their view was that the proposed transaction
would result in a substantial prevention and/or lessening of competition in South
Africa in the market for container shipping services on a variety of routes to and from
South Africa. It was their further view that the proposed transaction would potentially
lead to foreclosure in the freight forwarding market and other levels of logistics
supply chain. SAAFF subsequently dropped its intention to object to the proposed
merger because they were satisfied that the Commission’s adoption of the EU
conditions would remedy their concerns.
The transaction
5. The parties to this merger are Maersk and PONL. Maersk is a Denmark based firm of
the AP MollerMaersk Group. The AP MollerMaersk Group controls a number of
subsidiaries.3 Of these subsidiaries, Safmarine (Pty) Ltd controls a number of South Africa
based companies. 4 PONL is a Netherlands based company. 5
1 See page 2 of the transcript of 26 October 2005. The conditions subsequently withdrawn by the
Commission essentially related to the divestiture of PONL’s “rights, assets and obligations relating to
its liner activities” with respect to South Africa/North America trades.
2 See the letter from Webber Wentzel Bowens (representing SAAFF) dated 27 July 2005, page 941
of the merger record.
3 These include Maersk Sealand, Maersk Tankers, Maersk Gas Carriers, Car Carriers, Maersk
Maersk Supply Service, Maersk Brokers, Maersk Logistics, APM Terminals, Safmarine (Pty) Ltd,
Norfolkline and SvitzerWijsmuller.
4 Maersk South Africa (Pty) Ltd, Maersk Logistics South Africa (Pty) Ltd, Southern Africa Transport
Investments (Pty) Ltd and Umkhumbi Marine (Pty) Ltd (51%).
5 In South Africa PONL controls Cross Country Containers Africa (Pty) Ltd, P&O Nedlloyd (SA) Ltd
and P&O Nedlloyd Ltd.
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6. Maersk and PONL entered into a merger protocol in terms of which Maersk will acquire
the entire ordinary share capital of PONL. Postmerger, Maersk will exercise sole control
over PONL. 6
Rationale for the transaction
7. According to the parties, the proposed transaction was prompted by the need to
consolidate the socalled fragmented (liner) shipping industry. The parties asserted that the
consolidation would be necessary to achieve increased economies of scale, improved
quality of services to end customers and generate sufficient returns to maintain high
investment levels benefiting global trade. The parties would also like the merged entity to
deliver sufficient service and have enhanced global reach. 7
The Relevant Market
8. Maersk is involved in container shipping, bulk carriers, tankers, supply vessels, drilling
rigs and oil & gas exploration and production. Maersk’s South Africa business involves
containerised shipping, longhaul international containerised shipping and the operation of a
regional feeder service. 8
9. Globally, PONL is involved in containerised shipping, the provision of maritime transport
services, warehousing and distribution services, freight forwarding, logistics services and
truck transportation. It also owns harbour terminals throughout the world except in this
country. The merging parties told us that PONL operates containerised shipping services
only in this country.
Product overlap
10. What one sees from the above is that the only overlap between the merging parties
relates to the containerised shipping services. According to the Commission world shipping
industry can be divided into two broad categories, viz., bulk 9 and container shipping. 10
Geographic market
6 Pages 185186 of the record.
7 Pages 186187 of the record.
8 See page 46 of the record.
9 Bulk shipping handles large cargo parcels on pallets in holds especially designed for this purpose.
Bulk vessels tend to carry cargo of a low value / high volume and homogenous products such as
unpacked dry commodities (“dry cargo”) e.g., iron ore, coal, grain, timber, etc and liquid commodities
(“liquid cargo”) such as crude oil, chemicals, liquefied gas, etc. The shipping of bulk cargo is done
through either specialised bulk vessels or multipurpose vessels.
10 Container shipping services involve the carriage of goods by modular container, i.e., industrial
sized “boxes” of a certain standard size on specially equipped ships which provide a fixed service
between specified ports. These products are usually of high value / low volume heterogeneous
nature.
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11. The merging parties operate in a variety of trade routes as listed below. The parties
contended that the geographic range of container shipping is worldwide due to the scope for
supplyside substitution between various trade routes. The Commission contended that
container liner shipping services specified trade routes. Further to this there are certain
ships, which have been purposely built for the South African ports and which, cannot be
utilised anywhere in the world. According to the Commission moving vessels from one trade
to the other would be subject to long term planning and high switching costs.
12. Pursuant to the above the Commission defined the geographic market as constituting
each separate route, viz.: South Africa / Europe; South Africa / North America; South Africa /
Middle East; South Africa / Far East; and South Africa / IntraAfrica.
Competition analysis
13. The Commission’s investigation revealed the following combined market shares of the
merging parties postacquisition in containerised shipping relating to the above trade routes:
South Africa / Europe : 43%
South Africa / North America : 61%
South Africa / Middle East : 53%
South Africa / Far East : 33%
South Africa / IntraAfrica : 34%
14. The Commission’s investigation as confirmed by a number of customers, shippers and
carriers revealed that there are barriers to entry in the market caused partly by agreements
on trading conditions in the industry and cost involved in entering the market. The
Commission further submitted that there have been no entrants in the SA/Europe trade
route due to port constraints as SA ports are relatively small and cannot accommodate
certain types of large vessels. Although there might have been genuine competition
concerns regarding other routes, the Commission’s investigation nevertheless reveals a
much more positive results relating to other routes. For instance, the Commission found that
much more positive results relating to other routes. For instance, the Commission found that
there have been several new entrants in the SA/Middle East and SA/Far East trade routes in
the past three years. We have also been told that freight rates are negotiable. In addition,
the Commission noted that in the SA/North America trade slots are easily available and the
discontinuation of the USEADA Discussion Agreement has enhanced competition. The
Commission also discovered that there is competition in the IntraAfrica trade route as there
are large numbers of existing carriers. 11 Insofar as the South Africa/North America trade
route is concerned, the merging parties advised us that PONL does not operate a service or
deploy capacity on the South Africa/North America trade independently of its South
Africa/Europe service. Interestingly, PONL currently offers an indirect service to North
America via Europe, i.e., cargo travels form South Africa to Europe and then it is shipped to
North America and vice versa . The European leg of PONL’s service is supplied via the
11 In fact, one Mr Peter Newton, a representative company executive of one of the major customers
to the merging parties testified that “…on the South America, South Africa, Far East we made it very
clear we had no objection because there is plenty of competition on that route…” See the transcript,
page 11.
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SAECS consortium, of which the merging parties are currently members.
15. We note too that although a large number of customers and carriers initially raised
concerns about the proposed merger they were satisfied that the adoption by us of the EU
conditions would remove the objectionable features of the merger.
16. We are satisfied that the conditions do address the competition concerns initially raised
by the merger. Since they do so, it is not necessary for us to analyse those concerns to see
if they are valid. It suffices to say that if they are valid, the proposed conditions will remedy
them. In brief the proposed conditions provide for the following: the divestiture by AP Moller
of the business of PONL on the trade between Europe and South Africa; and the withdrawal
by PONL from the IOS liner shipping consortium as well as the notification by AP Moller to
the Competition Commission of the transfer of the divestment business as a merger
regardless of whether the transaction falls with the thresholds for notification as a merger. 12
Public Interest
17. The Commission was also concerned that the merger might lead to significant
employment loss. Maersk had indicated to the Commission that it anticipated that
the proposed merger might result in a reduction of approximately 5% or 1 500 jobs
worldwide across the combined entity over a period of 5 years. 13 Although the
merging parties had indicated that retrenchments in South Africa were unlikely as
natural attrition over time might obviate the need for retrenchments the Commission
remained concerned. The parties tendered a condition in respect of employment loss
that met with the Commission’s approval. We consider that in this case in view of the
high levels of employment loss that might eventualise particularly in relation to
unskilled workers that the condition is appropriate. The condition we have imposed at
unskilled workers that the condition is appropriate. The condition we have imposed at
the parties’ suggestion obliges the merged entity not to retrench any unskilled
employees of the merged firm due to the merger for a period of twelve months from
the date of this Order.
Conclusion
18. We are of the view that the imposed conditions will ameliorate any concerns that might
result from the proposed merger hence the conditional approval.
______________ 12 May 2006
N Manoim Date
Concurring: D Lewis, and Y Carrim
12 See the Tribunal’s nonconfidential order attached hereto and marked “Annexure A”.
13 See page 24 of the Commission’s Recommendations.
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Tribunal Researcher: T Masithulela
For the Merging Parties: Adv. D Unterhalter SC instructed by Bowman Gilfillan Inc.
For the Commission: M Langa (Legal Services) and L Khumalo (Mergers and Acquisitions)
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